Brown & Brown (BRO) Banks on Strategic Buyouts Amid Cost Woes

Brown & Brown, Inc. BRO has been gaining momentum on the back of strong performing segments, strategic buyouts to capitalize on growing markets opportunities, sturdy financial standing and effective capital deployment.

The brokerage insurer remains well poised for growth on the back of solid performance across its Retail and Wholesale Brokerage segments.

Riding on new businesses, better customer retention and premium rate increases across the majority of business lines, as well as acquisition activity, the operating segments should continue to generate increasing commissions and fees, which are likely to contribute to Brown & Brown’s overall revenues.

Brown & Brown and its subsidiaries continuously make strategic acquisitions to expand globally, add capabilities and boost operations. Also, these strategic buyouts help Brown & Brown increase commissions and fees, which, in turn, drive revenues.

Brown & Brown’s impressive growth is driven by organic and inorganic means across all segments. BRO intends to make consistent investments to drive organic growth and margins. Its solid earnings have allowed the company to expand its capabilities, with the buyouts extending the company’s geographic footprint.

Brown and Brown maintains a solid balance sheet with sufficient liquidity and low leverage. Consistent operational results have been aiding Brown & Brown in generating solid cash flows for deployment in strategic initiatives.

A solid liquidity position enables Brown & Brown to enhance shareholder value via dividend increases and share buybacks. With respect to dividend payments, the company has increased its dividend for the last 28 years at a five-year (2018-2022) CAGR of 6.3%.

Brown and Brown has been experiencing an increase in operating expenses due to higher employee compensation and benefits, amortization, change in estimated acquisition earn-out payables as well as other operating expenses and interest expense. Such expenses continue to weigh on margin expansion.

Interest expense has been increasing due to increased interest rate exposure on the floating rate notes and higher debt borrowings. A persistent elevation of expenses might weigh on its margins.

Other Industry Players

Other players in the brokerage insurance industry include Arthur J. Gallagher & Co. AJG, Marsh & McLennan Companies, Inc. MMC and Willis Towers Watson Public Limited Company WTW.

The bottom line of Arthur J. Gallagher surpassed earnings estimates in each of the last four quarters, the average being 4.48%.

AJG is the largest property/casualty third-party claims administrator and the fourth largest insurance broker globally based on revenues. Sustained solid operational excellence at its Brokerage and Risk Management segments should drive the top line. AJG has an impressive inorganic growth story.

The bottom line of Marsh & McLennan surpassed earnings estimates in each of the last four quarters, the average being 5.04%.

Marsh & McLennan’s solid Risk and Insurance Services business is a major driver. Strategic acquisitions are one of Marsh and McLennan’s major tailwinds. MMC made numerous purchases within its different operating units that enabled it to enter new geographical regions, expand within the existing ones, foray into new businesses, develop new segments and specialize within its existing businesses.

The bottom line of Willis Towers Watson surpassed earnings estimates in each of the last four quarters, the average being 5.82%.

Willis Towers Watson is well-poised for growth, courtesy of increasing organic commissions and fees, customer retention levels, new business, strategic buyouts and solid capital position. Its growth strategy involves focusing on core opportunities with the highest growth and returns as well as seeking strategic inorganic expansion that expands its geographical footprint and strengthens its portfolio.

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